Q4 2024 Flowers Foods Inc Earnings Call - Q&A
Welcome to the Flower Foods fourth quarter and full year 2024 results conference call.
Please be advised that today's event is being recorded.
Speaker Change: I would now like to hand the conference over to your opening speaker today, JT Rick, Executive Vice President of Finance and Investor Relations. Please go ahead.
JT Rick: Thank you and good morning. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks.
JT Rick: prepared remarks and view the slide presentation that were all posted earlier on our investor relations website. After today's Q&A session we will also post an audio replay of this call.
JT Rick: Please note that in this Q&A session we may make forward-looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that can cause actual results to differ materially.
JT Rick: In addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website.
Speaker Change: Joining me today are Riles McMullin, Chairman and CEO, and Steve Kinsey, our CFO. Riles, I'll turn it over to you. Okay, thanks JT. Good morning everybody. Welcome to our fourth quarter and full year call.
Speaker Change: Our team accomplished a lot in 2024. We grew dollars and units and track channels across our branded bread portfolio, helped by innovation and strong market execution.
Speaker Change: And continued implementation of our portfolio strategy drove improved sales and margins in our away-from-home business despite the impact of those deliberate business exits.
Speaker Change: Offsetting that performance has been persistent category weakness which led to lower than expected sales results.
Speaker Change: The biggest headwind from both a revenue and a volume growth standpoint is significant weakness in the sweet baked goods category. However, we're implementing concrete initiatives to offset that weakness and believe our portfolio is very well positioned to capitalize on current and long-term trends.
Speaker Change: Looking forward into 2025, our financial guidance is cautious, given the volatile environment, the potential for tariffs, commodities volatility, higher promotional activity, and continued weak consumer demand influence that cautious outlook.
Speaker Change: However, we are very optimistic that the strength of our brands, our successful history of innovation, and the innovation of Simple Mills to our brand portfolio will enable a strong longer-term performance.
Speaker Change: And with that opening, Gigi, we'll open it up for questions.
Speaker Change: Thank you. As a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Steve Powers from Deutsche Bank.
Good morning.
Transcription by ESO. Translation by —
Good morning, Steve. Can you hear me okay?
Yeah, loud and clear.
Speaker Change: Okay, great. Okay, sorry. Hey, so can I first ask about Dave's
Speaker Change: You know, it's been good obviously for a long time, but we've seen the
Speaker Change: core bread in that franchise, start to run negative in consumption data for, I guess, about the last 12 weeks. I think it was down about almost 3% in the last four weeks. I'm quoting Nielsen data. So, can you talk about just kind of what you're seeing there and how you expect the DKB franchise to perform?
Speaker Change: You know, in 2025, both your kind of core bread and then the entire, the entire lineup. Thanks.
Speaker Change: Sure, let me start with just the core bread, Steve, just so I'm clear on this.
Speaker Change: First of all, we've documented where our challenges are in the sweet baked goods category and a little bit in the soft variety white bread areas. DKV is not one of those challenges.
Speaker Change: DKB is a strong brand and will continue to be a strong brand. There is a bit of noise in those numbers. We had a ski rat deletion of a couple of underperforming skis that affected it.
Speaker Change: You know, if you're looking at fourth quarter, there's always some seasonal noise in there. The fourth quarter is typically, you know, fairly weak for sandwich bread, but nonetheless, we did still see very, very strong growth in some of our breakfast items, sandwich buns and rolls.
Speaker Change: And I'd add to that, we've got new products coming this year to replace those deleted SKUs, plus we're getting very significant space gains this year for Dave's, which is really important. One of those of note is in the Mass Channel and over 2,000 stores where DKB has been.
Speaker Change: has been underpenetrated, and I guess the final thing I would mention, from a household penetration standpoint, DKB hit a record this year, even higher than the pandemic year of 2020. So, you know, all that points to, you know, continued consumer interest in Dave's.
Speaker Change: We'll, of course, continue to innovate with Dave's, and we're not worried about that at all, so hopefully that helps give you some color. And then, of course, you add the snacks on top. The bars continue to do very well. We're really excited about the snack bite launch, which is underway as we speak.
Speaker Change: So as you think about it, you know, more as a mega brand, we're even more confident.
Speaker Change: Okay, that's very helpful. I appreciate it. And if I could, maybe a two-part follow-up and I'll pass it on. The first part is for Steve. You know, I wonder if you could better dissect the kind of the first half, second half dynamics that you you called out in the prepared remarks?
Speaker Change: You cited some dynamics that will definitely help the early part of the year.
Speaker Change: At the same time, as you go forward, you'll underline comparisons you use.
Speaker Change: You've got Simple Mills rolling in. You've got the extra week.
Speaker Change: So, I would have expected maybe a little bit different cadence, maybe some color there. And then Ryle's second part, you mentioned some external research on GLP-1 drugs and related consumer behavior. I'm just curious if you could elaborate on what that research is.
Speaker Change: And, you know, kind of what you're seeing there and how you're and how you're going to address it. Thank you.
Speaker Change: Sure, you know the first half you know primarily what we're looking at in the first half is
Speaker Change: You know, we'll begin to lap some of our new business.
Speaker Change: And that's some of our pricing and some of our savings gains that we
Speaker Change: that we saw last year in the back half. There is some pricing that carries over in the back half on primarily private label and food service, but a lot of the branded pricing we do have in the first half. And then the other major item for the first half has to do with commodity costs.
and input. The way we take coverage
Speaker Change: You know, we are seeing some benefit in the first half of 2025, but given some of the firmness you've seen in markets of late, right now we're forecasting some
Speaker Change: continued inflation with regard to input costs in the back half.
Okay.
Speaker Change: Steve, to your question on GLP-1s, I mean it's a fascinating topic, right, and everybody's still trying to figure out what the impact is, what the magnitude of the impact is, what the magnitude will be.
Speaker Change: going forward, and if you, you know, we're scanning all the research like I'm sure many of you are. Some of it's conflicting, so it's hard to get, you know, a firm, a firm handle on it, but we do want to be cognizant of it. Some of the work that we
Speaker Change: That we mentioned in the prepared remarks is from some work we did with Cercana.
Speaker Change: So, that's where that came from. But what I would say is that, you know, if GLP-1s do become a major factor and
Speaker Change: you know affect overall food consumption, we think that we're very well positioned for that.
Speaker Change: You see where we're taking the portfolio, it's definitely starting to skew much more better for you. Cleaning up labels, the dominance of DKB, having Canyon, and of course adding Simple Mills to that mix too.
Speaker Change: because a lot of these people that are on GLP-1s will be searching for items just like Simple Mill. So with all those factors in mind, we're shaping our portfolio to meet that new consumer that is taking those medications.
Very good. Thank you.
Thank you. One moment for our next question.
Speaker Change: Our next question comes in the line of Bill Chappell from Truist Securities.
Transcription by ESO. Translation by —
Thanks, good morning.
Speaker Change: Just a little more just I guess color on your your caution for the category and in terms of what you're seeing and and I guess it comes with you know do you think there's
Behavioral change because obviously some
Speaker Change: Yeah, Bill, it's mostly the latter. So sort of overall pressure on the demand environment.
Speaker Change: But I would, you know, I would add to that, you know, specifically to our category, it's that consumer shift away from soft variety and white breads.
Speaker Change: which I think we're very well prepared for. We talked about it in the prepared remarks. I mean, soft variety and white bread were weak. I'm talking in terms of the whole year now, not just the fourth quarter.
Speaker Change: However, you know, the investments that we've made in innovation around keto and gluten-free and organics and our sandwich bun and roll business particularly under the under the national wonder label were more than enough to offset that.
Speaker Change: So, if you take the cake piece out of branded retail, we were positive in units and dollars for the year in branded retail. Cake is really where the weakness has been.
Speaker Change: You know, the outlook, we've seen some of those trends from last year, you know, spill over already into the, you know, the little bit of this year that we've already experienced, though it's, you know, it's obviously very early.
Speaker Change: I do have some confidence that QSR will start to recover. We're starting to see more positive comments around that, so perhaps second half, this year some of that volume will come back to our food service business, helping overall volumes.
Speaker Change: You know, from a branded retail standpoint, we feel very good about where we are brand and button role-wise with the brands that we have, the innovation we have.
Speaker Change: With respect to the cake business, the introduction of the Wonder Brand is, I mean, the intention of that is to help stabilize that business. It has been weak. The category has been weak overall, as you all know. But the the reception that we've gotten
from our Wondersnack lineup has been.
Speaker Change: Tremendous honestly and if you know if the retailers follow through with that this will be more of a second quarter thing because we want it doesn't it doesn't launch until week 17 so I mean we won't have any bearing on the first quarter but
We're very optimistic.
Speaker Change: That will help stabilize that piece of the business, but obviously that has.
you know, a profound effect.
Speaker Change: on just given the weakness on the cake side of things. That has a profound effect on your outlook for the year. So you're starting the year definitely taking a cautious outlook for all the reasons that I just enumerated.
Speaker Change: You know the promotional environment has has continued to be somewhat elevated I wouldn't say it's ridiculous, but it is it is elevated though
you know, what we're seeing in terms of lifts.
Speaker Change: are not what you know one would normally expect speaking you know sort of total category. We've been much more nuanced in our promotional behavior.
Speaker Change: But the category overall has been has been somewhat elevated So we're keeping our eye on that too Really honestly a continuation of the trends that we talked about on last quarter's call there hasn't really been any marked change to that yet
Speaker Change: certainly looking to see if we see some improvement in consumer demand in the back half. So that overall is what's driving the cautious outlook, at least to start the year.
Solution for lower-income consumers.
Speaker Change: You know, they're not sure what they would be trading up from a dollar a loaf, you know, private label white bread to Dave's killer bread at $4. I mean, so I'm just trying to understand.
Speaker Change: you know, if you think there's this is a temporary or this is part of a trend and if you know that kind of the factors that are really driving that.
Speaker Change: Yes, we do and that's what I'm trying to say. I think that it's more of a secular shift away from those categories. I think it's, you know, we've talked...
Speaker Change: for several years now about the shift to more differentiated premium items. So, you know, some of that obviously is coming to us in the terms of Perfectly Crafted and Dave's Killer Bread.
Speaker Change: You know, other parts of it are going to the perimeter of the store. Other parts are going to tortillas and flatbreads.
So consumers are looking for something different.
Bye.
They're
Speaker Change: It strikes me that there's definitely been, you know, a shift in tastes and preferences, you know, away from those mainline items. So, you know, we've been ahead of this, as I mentioned, and, you know, with our keto lineup and everything else that I talked about, you know, we're meeting that new consumer demand and so far offsetting the softness in those traditional categories.
Got it. Great. Thanks for the color.
Thank you. One moment for our next question.
Transcription by ESO. Translation by —
Speaker Change: Our next question comes from the line of Robert Dickerson from Jeffries.
Robert Dickerson: Great. Thanks so much. A couple quick questions. I guess just, you know, first question, you know, as we
Robert Dickerson: Think through the year kind of cadence of the year. Maybe this goes back to mr. Powers question as well You know, we should should we kind of be expecting you know some
kind of, let's say, more...
Robert Dickerson: category softness right in the first half of the year maybe until you lap the category softness.
Robert Dickerson: So if we're thinking about top line and just, you know, organic volumes in general, I guess combined with maybe some of the innovation that comes later in the year, then maybe, you know, we're a little softer top line first half and then hopefully there's a little bit of momentum as we get to the back half.
It's a simple first question.
Robert Dickerson: Yeah, yeah. So from a top line standpoint, I think that's roughly correct. I don't really see any change in the consumer demand environment anytime soon overall. But we do have
As we mentioned, you know, the Wonder Launch...
Robert Dickerson: Will be right at the beginning of the second quarter. We actually have a lot of new business wins
Robert Dickerson: Significant business wins, most of those come in, you know, after the end of the first quarter. So, you know, I think as you think about cadence through the year in terms of, you know, our efforts to, you know, to win new business, geographic expansion, you know, new items, innovation.
Robert Dickerson: That's mostly at least a post first quarter item and then yes I mentioned you know QSR demand that coming back would certainly be helpful for service side of things but I'm not sure we see that until until the second half either.
Yeah, okay, fair enough. And then, Riles, maybe just on...
You know
Robert Dickerson: You know, coming back to the conversation around, you know, traditional white loaf, et cetera. I mean, I do feel like if we go back like a decade, right?
Robert Dickerson: I don't know. Whether we think of some of your core comparators in bread and we think about kind of just like how the shelf looks, right? If I personally walk into a grocery store, you know, now we have 18, 27, 32 grains, right?
Robert Dickerson: country white, hardy white, Hawaiian. I mean there's there's so many different options now in bread right I mean we're kind of simplifying to an extent right like there's a little bit more premium you know or you know let's say better for you I mean I could argue that
Robert Dickerson: It depends on how you're defining better, but whatever. Like, is there, you know, maybe just a part of the market where within bread, and let's, you know, ignore Dave for a second.
Robert Dickerson: I guess we could call it more harder loaf, right? I mean, you're, you're calling it soft loaf loaf, because it does feel like there's maybe a little bit more traction on that side. And maybe that's just viewed as more premium, even though maybe the health attributes aren't better. I don't know if that makes sense.
So, Rob, are you talking like more artisan crusty bread?
Robert Dickerson: Yeah, and I think that's a great example of where the market is shifting to. So if you think about white breads, for example, and what we've done with perfect bread.
Robert Dickerson: So, you know, while the while the traditional loaf under nature zones Perfectly crafted was up eight and a half percent in units in the fourth quarter, which is typically, you know week or So that that's one example in there, you know, we have a white bread under days as well So that's giving the consumer a place to go that's more premium and more differentiated than those mainline items to your point
Robert Dickerson: And then so like if we just think about the overall supply chain like does it make sense to maybe just like gradually infill some of the you know shelf on certain brands with maybe
Speaker Change: The examples you just gave. I don't know. I don't know if there's a cap on the TAM But it would seem like if markets going that way maybe it takes you a little while to get there But feels like you have the you know the capability to kind of get there
Speaker Change: Yeah, no, I think that's right. I mean, as you say, it's an evolution over time. I mean, you know, it's down, but make no mistake, there's still a lot of Nature's Own honeyweeds sold. So it's still, you know, from a volume standpoint, it's still a huge piece, same for, you know, Butterbrand and the other mainline Nature's Own.
Speaker Change: But you know we're plants are pretty flexible Rob as you as you'll recall so you know as we move forward and the consumer preferences shift you know we can run these items on the same lines we already have for for NatureZone.
So, there's a lot of perfectly correct.
Speaker Change: Made in the Miami Bakery, for example, which we've had for 50 years, and it makes nature's own butter bread, but it also pumps out the perfectly crafted as well. Dave's is a little different, obviously, with the organic, and obviously gluten-free is even more different, just given the segregation required.
Speaker Change: Yeah, our network is set up to be flexible in that regard as those preferences shift.
Speaker Change: Yeah, yeah. Okay, okay. Perfect. Makes sense. And then just maybe one question for me on the on the WonderSnack launch. I mean, you know, within the prepared remarks, right?
Speaker Change: you know, maybe it's just a good opportunity to kind of take some of the capacity you already have.
Speaker Change: So, like, is the idea as you speak with the retailers, hey, here's a category that's clearly, you know, under a bit of pressure and it's been that way for some time and there haven't really been a lot of new entrants.
Speaker Change: Right, so maybe this is something that could actually, you know, work as consumers want something new, you know, and trial not necessarily because it's premium or better for you.
That's all thank you
Speaker Change: Yeah, yeah. I think you said it. I think you said it very well. I mean, Wunder is an iconic brand. It's got 98% awareness, so it's among the highest in food. And, yeah, we've...
Speaker Change: Talked a lot about the fact that one of our our competitive issues in the cake business is just the lack of a
Speaker Change: of a brand to go up against the larger players with. We're a bit disadvantaged from that standpoint. I mean, Tasty's a great brand if you're from Philadelphia or the surrounding area, but if you're from Cairo, Georgia, maybe not so much.
Speaker Change: But wonder definitely resonates. I would also say that the quality is also a factor and we believe that our quality is superior. And we've been told by our retail partners that our quality is superior. So we think that gives us a nice competitive advantage as well.
Speaker Change: And just quickly, could that product line be launched nationally, you know, kind of relative to Tasty, or is it probably more in a kind of a TastyCake regional play?
Speaker Change: No, we can go national with Wonder. A, it's a national brand, and B, this is all warehouse distribution, so we're not limited by the DSD now.
Speaker Change: Super, super. All right. Awesome. Thank you. Appreciate it. Thank you. One moment for our next question.
Okay.
Speaker Change: Our next question comes from the line of Jim Salera from Stevens.
Yes, good morning. Thanks for that question
Speaker Change: I appreciate some of the detail on 2025. I wanted to maybe parse out some of the legacy business. If my back of the envelope map is correct, if I take the midpoint, strip out the 53rd week in the Simple Mills acquisition, that gets just shy of like 1 percent growth for the core 52 on 52 week legacy business.
Speaker Change: How can we think about, you know, the kind of expectations for the components there? It seems like, you know, maybe food service still down modestly, you know, the core bread offering maybe up a little bit, and then sweet baked goods kind of a variable.
Speaker Change: Trying to give us a sense for the components of the legacy business for 25.
Yeah, I'll be you.
Speaker Change: I think you're thinking about it right, number one. But secondly, I'd say a lot of that 1% growth will be mixed-driven.
Speaker Change: And as Ronald's pointed out, the performance of our premium brands continue to be really strong. So we're forecasting good performance for 2025 from that perspective as well. We believe, as Ronald said, 1 or K should help.
Speaker Change: From a K perspective, but again, that doesn't really kick in until the second quarter and you know, we are
Expecting some recovery.
Speaker Change: from quick food service during the year as well. So when you look at that 1% growth, a lot of that's going to be mixed driven from a pricing perspective. We've taken pretty substantial pricing over the past couple of years. There might be a pocket here or there, or something very selective, but for the most part...
It will be, you know, mixed driven.
Speaker Change: That's helpful. Then maybe a second question on some of the innovation and formatting. Roz, in your prepared remarks, you mentioned
Having the opportunity to
Speaker Change: with certain brands, is there an opportunity effectively thinking about, you know, GOP1 impact to kind of, you know, expand that across the portfolio to, you know, make it more accessible and...
Speaker Change: Yeah, I think it's a we'll see right now, Jim. We currently only have it under the NatureZone brand for the small loaves. We are looking at it for Wonder as well.
Speaker Change: And then, of course, this is not exactly analogous, but, you know, DKB has had for a long time the thin slice, which is a much smaller loathe than that big, you know, super premium.
YPAN bread.
Speaker Change: and we do find that to a lower price point, obviously, margins are still good for us and that's a consumer need that we're trying to meet. There are others out there. We're not always the first to market. We weren't the first to market with keto and yet we're number one in that sub-segment now.
Speaker Change: And there have been others that have been earlier to market with the small loaf. And we've been watching it, it's done well. It's obviously a need for certain households, and so we elected to meet that demand.
Speaker Change: And then maybe if I could sneak in just one last, well, you mentioned very briefly in
Speaker Change: the beginning of the Q&A, just some uncertainty on tariff. Can you give us maybe just high-level thoughts on
and just any impact that might have.
Oh, yeah, Jim, this is Steve. I mean...
Hello, everyone.
I'm sure you'll assume this, but basically it's ingredient-driven.
Speaker Change: We have taken into consideration some estimates of the tariffs, and that does flow through our guidance. We looked at ways to mitigate that the best we can, but the reality is a lot of it's ingredient-driven, and as you would expect, most of it's...
Speaker Change: Canadian or Mexican driven, but there are some in China, but the majority of it would be from those two countries.
Okay, great.
Perfect. Thanks, guys. I'll pass it along.
Speaker Change: Thank you. Thank you. Thank you. One moment for our next question.
Speaker Change: Our next question comes in line of Brian Holland from D.A. Davidson.
Brian Holland: Yeah, thanks. Good morning. Maybe just following up on some of the earlier lines of questioning, you know, I think Jim's point.
Brian Holland: implied 25 guidance top line excluding acquisitions excluding 53rd week we're looking at like 80 bits of growth at the midpoint which I think on its face looks
Speaker Change: Modest, but for the last three quarters your sales have declined, volumes have gotten worse.
Speaker Change: category trends are softening as we move, further softening. I'm talking about all package bakeries as we move through Q1.
Thank you.
Speaker Change: It may be to the extent that you could sort of parse out because it strikes me that
Speaker Change: Innovation is the incrementality of that and maybe some of the new business wins on the food service or in the you know non-retail business would be the primary drivers above and beyond you know maybe a down category and just some natural share growth on your part.
Speaker Change: So, maybe at its most simplistic, do we have a bigger innovation wave in 2025 and 2024? And where does that fall if you were to tier the drivers, you know, bridging from where the category is to where you're guiding for 2025?
Speaker Change: Yeah Brian, so lots to talk about there. So several things. One, I think I heard you say new business in the away from home. Most of the new business is on the retail side.
Speaker Change: So, we are picking up some private label, but we're getting a lot of brand concession for that as well. I mentioned at the outset of the call, part of that is some significant new space for DKB, which is going to be great for us.
Speaker Change: So it's a combination of things and all of that's intended, you know, we're still saying, you know, for the time being we're not expecting any major positive changes in consumer demand. That's why we started the year cautious, but all this stuff is met.
Speaker Change: to offset that. Then, of course, if consumer demand starts to improve, which we believe it eventually will, we're very well positioned to take advantage of that.
Speaker Change: I appreciate that. That's all helpful. Thank you. And then just quickly on simple mills, I think you'd put
Speaker Change: explains the implied decline. But if I have that right, just a sense for kind of what you're assuming for that business on an apple to apples basis in 2025?
Speaker Change: Stay on the closing schedule that we've assumed here. And then.
From an overall growth perspective.
You know, we are assuming some modest growth.
For 2025.
Speaker Change: So if you say modest growth for 2025, I think the business has grown at like a mid-teens CAGR or something like that. Is there anything with respect to just you know integration etc that you might explain why?
Speaker Change: The implied guide for that business would look more conservative than what the historical trend has been, or is that just conservatism not dissimilar to the way you're trying to approach your core business?
Speaker Change: Yeah, let me comment and Steve can add on to this. First of all, it's a little tricky for us because we haven't closed yet.
Speaker Change: So, we're assuming a certain number of weeks in this contribution, so we've kind of given a range to give ourselves a little bit of breathing room there just because we haven't closed yet. We do expect it to be soon, but as of today, we haven't closed.
Speaker Change: The second thing I would say is that we're very, very bullish on this business.
Speaker Change: We wouldn't have paid the premium that we did if we weren't. But we do need to get them, you know, we need to get them integrated. And, you know, we...
Speaker Change: We can't do a lot of that, obviously, pre-closing for regulatory reasons.
Speaker Change: But once we get in there and we decide how we're going to work together and the things that we can bring to them to accelerate.
Speaker Change: their distribution gains, their innovation pipeline, etc. You know, it'll take a few months for us to get there. So I think it'll come into much clearer focus. Though I know it's probably frustrating for your modeling efforts. It'll come into clearer focus after we get closed.
Speaker Change: And Brian, I don't know if you had a chance to look at the deck yet, but on slot 7.
Brian Holland: We do call out that we're assuming a four-year pro forma contribution of roughly $258 to $266 million from a top-line perspective, so that should be able to help you from a modeling perspective.
Brian Holland: Okay, thank you. That is helpful. And then, if I could speak in one more, just any thoughts, Riles, about how...
How the promotional landscape.
Brian Holland: might evolve as commodities become a headwind for the category into 2025. I think historically an inflationary environment upstream has tended to be beneficial for flowers, just given kind of your hedging strategy vis-a-vis
Brian Holland: the balance of the category. So maybe just any thoughts there.
Transcription by ESO. Translation by —
On the, on the promotional environment, you mean.
Speaker Change: Don't have the same hedging or for buying practices that somebody like a flowers might have that they would have to correct more quickly to account for that. And again, historically, I think that's been a net benefit for flowers. Just curious.
How you think about that?
Speaker Change: Yeah, I would think about it exactly the same way though it, you know, it'd be just pure speculation to figure out, you know, exactly when you know that might happen and what you know what they might do and when.
Speaker Change: Yeah, you're right. Historically, it has, you know, overall been a benefit, you know, and I mentioned a while ago, you know, we've been watching the promotional environment very carefully, you know, the
Speaker Change: No surprise. I mean, for us, I mean, the base units have been, you know, a little bit weak, but, you know, our promotional cadence has delivered, you know, some pretty nice incremental
Speaker Change: incremental units. On the other hand, we have seen more broadly across the category, you know, deeper perhaps more aggressive promotions.
Speaker Change: And, you know, our analysis shows that those are not delivering from an incremental standpoint. So, you know, certainly my hope is that, you know, that stabilizes and pulls back.
Speaker Change: But in the meantime, we're gonna continue with the same strategy we have. I mean, we have the number one brands, we don't have to promote as deeply because of the strength of those brands, and we'll continue utilizing that strategy.
Great, thanks. We'll leave it there.
Thank you. One moment for our next
Speaker Change: Our next question comes from the line of Mitchell Pinheiro from Sturdivant & Company.
Hey, good morning.
Speaker Change: Most of my questions have been asked, but I do have just a couple of things. Regarding guidance, you know, the flower stand-alone, you know, earnings per share is, you know, is flat to down versus 24.
On earnings.
I think you'll see more pressure within SDNA.
Speaker Change: And is that workforce related? I mean is that is that related to California transition or?
Just general, you know, workforce related pressures.
Speaker Change: I think you'll continue to see some of the pressures we talked about on Q4, you'll continue to see workforce, you'll continue to see an increase in overall lease or rent expense, so it's really is related to the, you know, the truck leases and rentals for California.
And then you'll continue to see.
Your cold storage expenses increase as well.
Hello.
Speaker Change: So there's several factors within SDNA, you know, forecasted to be up year over year. I think from a gross margin perspective, you know, not only God, but, you know,
I think overall we should be okay, 24 to 25.
Speaker Change: Yeah, Mitch as well, just remember that as we move through the first quarter of this year, Steve already mentioned the lap of the pricing, but we will also start to lap the savings initiative that we launched last year, that $46 million that we saved in 2014.
Speaker Change: What are you trying to say there? Is that, I mean, because that's going to be a company-owned model versus your traditional, you know, independent model. Is that saying that you could be more efficient as a, with a company-driven model?
Speaker Change: Yeah, I think I would think of it in terms of control, you know, obviously with our IDP model, you know, we have very limited control there because they're independent business owners, as you know.
Speaker Change: Now, Mitch, as you know, we were forced to do that in California. This wasn't necessarily by choice.
Speaker Change: So we'll see how it goes. You know, on balance, as we've mentioned, it is a little bit more expensive.
Speaker Change: that's on our books. But, you know, our aim is to more than offset that via that control with enhanced sales growth. Primarily, honestly, if nothing else, increased days of service. We all know how important Sunday service is and that can be somewhat uneven with an IDP model.
Yeah.
All right. Thank you. And then just one other thing.
And I forget, maybe someone else asked this already, but...
Speaker Change: You know the small loaves that you're putting out you've always You've thought about it before but it sort of didn't quite make sense in years past for a variety of reasons is Have you solved any of the small loaf margin issues or? you know
Transcription by ESO. Translation by —
Speaker Change: It's not a major margin drag, Mitch, first of all, it's not big enough yet really to have that big of an effect.
Speaker Change: But, to answer your question, it is a little bit lower than the mainline items just due to the fact that we're not really set up to just produce a small load. There's some complexities in the plants. However, if we start to find success with this...
Speaker Change: You know, we would go and make the necessary changes in the plants to fix that and that would that would go a long way To helping the margin profile. I'm not really worried about it right now. This is really more of a
Speaker Change: Test and learn Circumstance for us, but if it you know, it's doing well if it continues to do well We've got you know more skews coming out to help support it if it really takes off then we'll make the necessary investments on the supply chain side
Okay
Speaker Change: All right. That's all I have. Thank you for your time.
Thank you. One moment for our next question.
Speaker Change: Our next question comes in the line of Max Gumport from BNP Paribas.
Max Gumport: Hey, thanks for the question. Just turning back to the commentary on...
Max Gumport: Not the solution to volume pressure in the bread category, and that sounds like a prudent approach to be taking given the lack of lifts that we're seeing.
Speaker Change: It's not clear, though, that your competitors are of the same mindset and stepping away from promotion, so how would you think about navigating through an environment if you have large competitors that continue to promote through the year, even if a bit irrationally? Thanks.
Max Gumport: Yeah, right, can't control what they do, I understand that, but you know, I think...
Max Gumport: Simply put, if you look at our market share performance relative to, you know, some of the competitors that you're talking about, I think you'll find your answer there.
Max Gumport: Our performance has been much better and we don't promote nearly as deeply. I think our overall price per unit was down maybe a penny in the fourth quarter.
One penny.
Max Gumport: Up one penny in the fourth quarter. Sorry. In the fourth quarter. So that, you know, and that typically, you know, tends to be a higher promotional quarter just given the seasonality. And yet our market share performance was better. So I would, I would leave it at that.
Okay, and then turning back to the...
Max Gumport: expansion of Wonder into Sweet Baked Snacks. So I mean clearly you noted that one of the biggest headwinds you're facing right now is that weakness in the Sweet Baked Goods category and you're planning to address that head-on with the introduction of Wonder Snack Cakes.
I'm just wondering why that's the right strategy.
Max Gumport: And to me, it would seem you can choose the categories that you play in. And so I'm wondering why you're
Transcription by ESO. Translation by —
Speaker Change: Exactly. Why expand Wunder into snack cakes now? Why is snack cakes the right category? Why not think about a different category that isn't under a whole lot of top-line pressure?
Bye.
Well, I would put it this way.
Speaker Change: We're in the sweet baked goods business and it's a headwind and it needs it needs addressing I think that's I think that's very clear And we've documented it for a number of years that it's been a that it's been a headwind from us first Operationally and now from a from a top-line standpoint and we think that wonder translates Much more easily into the and seamlessly into the sweet baked goods category than it might others
Speaker Change: households on GLP-1 drugs start to revert even more fully back to center store items.
Speaker Change: I'm curious, you know, are there center store items in particular that they're reverting to? Did they give you any reasons for why that, you know, counterintuitive shift is occurring? Thanks very much.
Yeah.
Speaker Change: Yeah, sure. I mean, and look, I mean, the research that we're citing is, as I said earlier, you know, one of many, I think, you know, some of these even tend to conflict with each other.
Speaker Change: But yes, we have seen some data that shows that, you know, people start that medication and when they stop, they come back and they buy more than they did before.
Speaker Change: But I think, you know, it's one point in time, it's one data point. I would caution everyone on that.
Speaker Change: I don't think I've been very clear that I don't think anyone has gotten this completely figured out yet or knows what the long-term implications of it are. I think the important thing to note is that regardless of the outcome, we're positioning our portfolio to be successful in any environment.
Okay, thanks very much.
Speaker Change: Thank you. At this time, I would now like to turn the conference back over to Riles McMullen, Chairman and CEO, for closing remarks.
Speaker Change: Thanks Gigi. I want to thank everybody for taking time today and joining us for questions. Thanks very much for your interest in our company and as always we look forward to speaking with you again next quarter. Take care.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.
No audio
[music]